Friday, 9 March, 2012

Kingfisher - Fit case for "Breaking the Corporate Veil"

Kingfisher - Fit case for "Breaking the Corporate Veil"

There has been a major hue and cry over whether or not to bailout Kingfisher.

In the entire discussion, an important aspect has been broadly ignored by one and all. Certainly by the Government of India.

Kingfisher has apparently been deducting taxes at source (TDS) but has conveniently chosen not to deposit it in time with the Income Tax authorities.

Income tax authorities have frozen a few bank accounts of Kingfisher airlines and are awaiting settlement of their dues.

There has been a stunning silence from SEBI and the Ministry of Corporate of Affairs.

Let's look at the facts - They are quite simple:

  • Kingfisher Airlines has apparently deducted TDS while paying salaries to its employees (perhaps while making payments to its vendors as well)
  • Kingfisher Airlines has apparently failed to deposit the TDS so collected with the Income Tax authorities.

Let's look at a hypothetical scenario in a very small kirana store or a small scale industrial unit or a small transporter owning a couple of trucks:

  • Can any of them stop payment of salaries for a few weeks without the explicit knowledge, consent and instruction from the owner/promoter?
  • Cany they refrain from depositing the TDS collected with the Tax authorities without the explicit knowledge, consent and instruction from the owner/promoter?

Chances are exceptionally bright that no owner can ever claim ignorance of these situations. Nor can he/she wash of his personal responsibility and accountability on such serious acts of omission and commission.

My contention is that if TDS deducted has not been deposited in time with the tax autohorities by Kingfisher, it is very clearly a wilful, conscious act on the part of the top management, most likely with the explicit knowledge, consent and instruction from the owner/promoter. Knowing the hands on style of functioning of Vijay Mallya, my hunch is that he is extremely unlikely to have been unaware of the acts of omission and commission.

This obviously involves treating the money belonging to other legal entities (such as the individual employees, the tax authorities, etc.) as money belonging to Kingfisher Airlines (for running routine day-to-day operations).

If Vijay Mallya and/or his top management have chosen to ignore the sanctity of the distinct legal entities involved in the matter, the law enforcement agencies under the Ministry of Finance & Ministry of Corporate Affairs must, likewise, explore the possibility of looking beyond the corporate veil of Kingfisher Airlines. They must explore the possibility fo breaking the Corporate Veil. They must look at legal options of holding Vijay Mallya and/or his top management personally liable for the payment of TDS deducted but not deposited.

There is no excuse. The time to act is NOW!

Regards,

N


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